HE 


UC-NRLF 


CvJ 


GIFT   OF 


Ian  for  the  Operation  of  the 

New  American  Merchant 

Marine 


as  proposed  by 


EDWARD  N.  HURLEY 

>  i 

Chairman  United  States  Shipping  Board 


WASHINGTON 
March  27,  1919 


" 


Address  delivered  by  Edward  N.  Hurley,  Chairman  United  States 
Shipping  Board,  before  the  National  Marine  League,  Commodore  Hotel, 
New  York,  Thursday  evening,  March  27,  ipip. 

IN  THIS  ADDRESS,  MR.  HURLEY,  FOR  THE  FIRST  TIME,  GIVES  AN  OUTLINE 

OF  HIS  PROPOSED  PLAN  FOR  THE  OWNERSHIP  AND  OPERATION  OF  THE 
VESSELS  BUILT  FOR  THE  GOVERNMENT  BY  THE  UNITED  STATES  SHIPPING 
BOARD. 


The  first  public  address  that  I  delivered  as  Chairman  of  the  United 
States  Shipping  Board  was  before  the  National  Marine  League  about  one 
year  ago.  At  that  time  the  world  war  was  at  its  lowest  ebb  insofar  as  the 
Allies  were  concerned.  The  Cambrai  battle  had  been  fought  and  lost  by 
the  British ;  the  French  had  been  driven  back,  and  all  the  indications  were 
that  the  submarine  would  continue  sinking  more  ships  than  the  world 
could  produce,  which  meant  that  Germany's  ruthless -submarine  warfare 
would  succeed  in  the  effort  to  starve  Great  Britain,  and  that  the  world 
itself  would  face  the  disaster  of  a  German  victory.  At  no  time  during 
the  bitter  struggle  was  the  outlook  more  black  for  the  Allies.  Then  it  was 
that  Mr.  Lloyd  George  issued  an  appeal  that  came  to  us  clanging  like  a 
bell.  It  was  "Ships,  ships  and  more  ships" — a  strident  call  that  rang  out 
a  warning  to  the  world" that  if  the  war  was  to  be  won  we  must  have  the 
ships  and  have  them  quickly. 

At  the  time  of  my  last  address  before  this  body,  the  present  Shipping 
Board,  which  had  been  organized  little  more  than  half  a  year  before,  had 
by  dint  of  unexampled  effort  added  81  steel  and  wood  ship-building  yards 
to  the  small  nucleus  we  possessed  at  the  beginning,  an£  had  expanded 
1 8  other  yards.  In  these  new  and  expanded  yards  we  were  then  building 
ships  on  235  launching  ways. 

Our  Strength  in  Ship  Production. 

At  the  time  of  the  signing  of  the  armistice,  we  had  341  shipyards 
practically  completed  and  a  total  of  1,284  launching  ways.  This  is  more 
than  double  the  number  of  yards  owned  by  all  of  the  rest  of  the  world 
combined. 

On  March  I,  of  this  year,  the  present  United  States  Shipping  Board 
completed  the  first  year  and  a  half  of  its  existence.  During  those  eighteen 
months  it  has  added  to  our  merchant  mririne  a  total  of  619  wood  and  steel 
vessels  aggregating;  3,^4.0^.406, deadweight  tons. 

This  is  a  world  :refc£ftd'  m  construction.  It  needed  to  be.  If  Great 
Britain  had  gone  under,  the  war  would  have  been  ended  before  we  could 
have  gotten  into  it.  It  was  during  those  dark  days  that  it  was  stated  in 
the  House  of  Commons  that  if  submarine  losses  continued  to  be  sustained 
without  replacement,  Great  Britain  would  be  in  deadly  danger  within  six 
months,  and  ruined  in  nine. 

Lord  Northcliffe,  who  knew  the  seriousness  of  the  situation,  and 
delivered  a  number  of  speeches  in  many  States  urging  the  great  necessity 
for  ships,  was  here  at  that  time  and  called  on  me  frequently  to  find  out 
what  progress  we  were  making.  Everyone  realized  that  unless  we  could 
build  ships  faster  than  the  submarines  were  sinking  them  the  war  would 
be  lost,  for  we  could  not  feed  the  Allies  and  our  soldiers,  nor  supply  them 


with  munitions.  And,  gentlemen,  it  was  not  a  question  of  what  kind  of 
ships  should  be  built.  Any  kind  would  do — concrete,  wood,  steel,  or 
anything  else.  And  it  was  not  a  question  of  price.  It  was  a  question  of 
getting  the  ships.  What  has  been  accomplished  in  this  direction  the  world 
knows,  and  I  am  not  going  to  dwell  on  it  extensively,  but  I  wish  to  say 
that  the  men  I  asked  to  join  our  organization,  like  Mr.  Schwab,  Mr. 
Rosseter,  Mr.  Franklin,  and  Mr.  Piez,  did  great  work,  and  the  workmen 
in  the  yards  accomplished  wonders.  We  built  up  a  hurried  organization 
with  the  biggest  men  we  could  find,  and  there  was  no  thought  about  who 
was  going  to  get  the  credit.  We  knew  that  if  we  succeeded  the  country 
we  were  serving  would  get  the  benefit,  and  that  was  incentive  enough 
for  any  man. 

Facts  About  the  Wooden  Ships. 

We  have  heard  a  great  deal  of  criticism  about  the  wooden  ships.  We 
all  know  that  for  most  of  the  needs  of  modern  ocean  trade  wooden  ships 
are  not  as  good  as  steel  ships.  There  is  no  secret  about  that,  and  during 
the  war  you  did  not  hear  many  protests  against  the  building  of  wooden 
ships.  We  now  have  115  wooden  ships  in  service.  We  originally  con- 
tracted for  703  of  these  vessels.  We  have  cancelled  and  suspended  214 
contracts.  We  are  not  now  equipping  the  hulls  that  are  finished,  with 
engines  and  boilers.  We  are  finishing  off  some  of  them  as  sailing  vessels 
and  some  as  barges.  In  general,  we  are  handling  the  matter  along  business 
lines,  and  in  this  connection  I  would  like  to  relate  an  incident  that  occurred 
in  England  in  connection  with  the  British  building  wood  ships. 

Mr.  Lloyd  George  insisted  that  the  British  should  build  wood  ships 
in  Canada,  in  Australia,  and  in  England,  and  a  committee  of  British 
shipping  men  called  upon  him  and  protested  against  the  Government's 
spending  of  money  on  wood  ships,  making  the  claim  that  they  were  not 
as  effective  as  steel  ships,  etc.  After  listening  attentively  to  their  protests, 
Mr.  Lloyd  George  made  this  statement:  "Gentlemen,  all  you  say  about 
the  wood  ships  being  inferior  to  steel  ships  is  undoubtedly  true,  and  under 
ordinary  conditions  I  would  be  governed  entirely  by  your  judgment.  But 
we  are  now  at  war,  and  we  cannot  win  the  war  without  ships,  whether 
they  be  wood,  steel,  or  any  other  kind.  If  these  ships  will  make  but  two 
or  three  trips,  build  them.  We  must  have  ships." 

The  wooden  ships  we  have  will  make  many  trips,  and  as  an  emergency 
ship  they  have  been  of  great  service.  Although  they  are  not  suited  to 
compete  with  fast  steel  liners  in  the  trans-Atlantic  trade,  they  will  continue 
to  be  of  service  in  trades  where  they  are  suitable.  The  existing  world 
shortage  of  tonnage  is  sufficient  guaranty  of  this.  Insofar  as  seaworthi- 
ness is  concerned,  I  wish  to  point  out  that  while  we  have  sustained  four 
total  marine  losses  among  our  wooden  ships,  we  have  sustained  five  among 
our  steel  ships.  Of  these  total  losses,  one  wood  ship  and  one  steel  ship 
foundered  at  sea  in  heavy  weather,  so  that  on  the  score  of  seaworthiness 
the  honors  are  even.  The  other  total  losses  were  due  to  stranding  or 
collision,  accidents  as  likely  to  happen  to  a  steel  ship  as  to  a  wooden  ship, 
and  which  have  no  bearing  whatever  on  the  question  of  seaworthiness. 
At  any  rate,  if  this  war  had  gone  on  until  1920  the  wood  ships  might  have 
made  it  possible  to  have  won  the  war,  and  then  no  one  would  have  criti- 
cized the  policy  of  building  wooden  ships. 

As  Senator  Duncan  U.  Fletcher,  Chairman  of  the  Senate  Committee 
on  Commerce,  recently  told  the  members  of  the  Merchant  Marine  Confer- 

,9343? 


ence,  it  was  time  to  build  ships  out  of  anything  that  could  be  used  for  ship 
construction,  to  build  ships  out  of  wood,  out  of  concrete,  out  of  steel,  out 
of  anything  that  could  float — out  of  anything  that  could  carry  men  over- 
seas and  keep  them  supplied  with  food  and  ammunition.  It  had  to  be 
done  then.  And  it  had  to  be  done  quickly.  There  was  no  time  for 
temporizing.  I  will  quote  you  a  paragraph  from  the  Senator's  address. 
He  says: 

Lives  and  Money  Saved. 

"You  couldn't  wait  and  say,  'Hold  on  until  things  stabilize  themselves ; 
hold  on  until  we  get  to  normal  conditions.  We  will  then  save  a  few 
thousand  of  Uncle  Sam's  money.'  Millions  of  lives  and  millions  of  money 
were  saved  by  doing  the  very  things  that  were  done ;  by  hurrying  up  this 
program  and  building  ships  night  and  day;  by  letting  the  world  know 
we  had  the  most  stupendous  building  plants  on  earth ;  that  we  had  the 
men,  we  had  the  money,  we  had  the  material ;  that  we  were  going  to  carry 
bur  forces  overseas,  and  with  them  their  supplies ;  that  we  had  two  and  a 
quarter  million  men  over  there,  two  million  more  in  training  here,  and 
thirteen  million  registered  and  ready  to  go. 

"And  when  Germany  saw  that  she  ran  up  the  white  flag." 

I  want  to  mention  here  one  thing  that  I  believe  had  more  to  do  with 
arousing  our  country  to  the  necessity  of  building  ships  than  any  other 
one  thing,  and  that  was  our  campaign  for  volunteers.  While  the  people 
of  the  country  knew  of  the  heavy  losses  of  tonnage  from  submarine 
sinkings,  they  did  not  understand  the  seriousness  of  the  situation.  Our 
people,  not  understanding,  were  not  supporting  us  in  the  way  they  should. 
Their  thoughts  were  on  their  business  and  their  sons,  who  were  going  into 
the  training  camps  and  sailing  for  Europe. 

Feeling  that  some  step  should  be  taken  to  create  a  spirit  of  enthusiasm 
in  the  hearts  of  the  mechanics  and  workers,  as  well  as  the  people  in 
general,  we  introduced  a  plan  whereby  we  were  to  raise  an  army  of 
250,000  patriotic  workers  to  serve  in  the  shipyards.  We  limited  the  time 
for  this  enrollment  to  ten  days,  and  I  am  happy  to  say  at  the  end  of  that 
time  285,000  men  throughout  the  United  States  had  volunteered  to  leave 
their  homes  and  families  and  report  for  duty  at  the  various  shipyards 
when  we  notified  them  to  do  so.  The  effect  of  the  enrollment  of  the 
workers  and  the  educational  campaign  was  that  within  nine  months  we 
had  increased  the  number  of  employees  in  our  shipyards  from  45,000  to 
380,000 ;  had  built  65  new  shipyards ;  had  the  entire  country  back  of  our 
program,  and  in  one  day,  the  Fourth  of  July,  launched  96  ships. 

Credit  Due  Shipyard  Workers. 

This  message  was  conveyed  to  General  Pershing,  and  there  is  no 
question  but  that  it  heartened  him  and  every  soldier  and  imbued  them 
with  the  knowledge  that  the  American  people  Were  back  of  the  ship- 
building program,  and  that  the  ships  would  be  furnished  to  help  them 
carry  on  the  work  of  aiding  to  win  the  war.  I  am  sure  that  it  also 
heartened  all  the  Allies.  The  men  deserving  of  the  credit  for  this  great 
success  are  the  workers  in  the  shipyards,  and  the  enthusiastic  people  back 
of  them.  Every  newspaper,  every  magazine,  every  moving-picture  thea- 
tre, and  the  4-minute  men  organization,  consisting  of  20,000  speakers, 
were  used  to  impress  upon  the  people  the  need  for  the  construction  of 
ships  with  the  greatest  possible  speed. 

4 


We  have  part  of  our  foreign  fleet  built,  while  we  are  constructing 
more.  We  shall  have  authorizations  and  appropriations  to  finish  if  Con- 
gress gives  us  the  money  we  ask,  which  I  feel  confident  they  will.  We 
shall  have  completed  ocean-going  ships,  not  lake  or  coastwise  ships.  I 
am  only  referring  to  ocean-going  steamers  adapted  to  foreign  trade.  The 
world  war  has  broadened  our  vision  so  that  we  think  nothing  today  of 
distance.  We  are  now  thinking  not  only  nationally,  but  internationally, 
and  we  must  think  internationally  if  we  are  going  to  be  a  factor  in  the 
world's  game. 

Plan  of  Ship  Operation. 

When  I  last  addressed  you,  it  was  my  privilege  to  outline  to  you 
the  American  shipbuilding  program.  Tonight  I  desire  to  present  for 
your  consideration  an  American  ship-operating  program.  The  opera- 
tion of  a  fleet  of  16,000,000  tons  of  ships,  70  per  cent  of  which  is  owned 
by  the  Government,  is  a  problem  that  should  be  carefully  considered 
from  every  angle,  and  in  presenting  this  plan  for  your  best  thought, 
I  feel  I  should  say  that  the  Government,  without  unnecessary  delay, 
must  take  a  prompt  and  definite  step  in  giving  legislative  form  to  this,' 
or  some  other  policy  which  will  meet  with  the  approval  of  the  country. 

While  the  war  was  on,  the  recital  of  shipbuilding  achievement 
found  a  quick  and  ready  response  from  an  enthusiastic  public.  There 
is  less  glamour  and  glory  in  the  work  of  evolving  a  policy  which  will 
keep  these  ships  under  the  American  flag,  and  develop  our  commerce, 
but  this  work  touches  the  life  of  the  nation  almost  as  closely  as  the 
emergency  shipbuilding  program. 

Upon  the  development  of  our  foreign  commerce  will  depend  in  a 
large  measure  the  prosperity  of  all  the  American  people,  the  employ- 
ment and  happiness  of  labor,  and  the  respect  of  the  nations  which 
compete  with  us.  I  am  personally  opposed  to  government  owner- 
ship, except  as  a  last  resort.  During  the  war,  it  was  necessary  for 
the  government  to  build  a  merchant  fleet.  Private  capital  never 
could  have  accomplished  this  colossal  task,  involving  the  creation  of 
many  new  shipyards,  and  the  training  of  a  large  army  of  workmen. 

Government  ownership  of  this  large  fleet  resulted  automatically. 
If  we  are  to  return  to  private  ownership,  the  transition  must  be  made 
under  such  conditions  as  will  completely  safeguard  the  interest  of  the 
public.  If  this  fleet,  built  at  government  expense,  were  to  be  used 
now  merely  for  the  advantage  of  groups  of  ship-operators,  with  suffi- 
cient capital  to  purchase  the  ships  from  the  Government,  I  would 
unhesitatingly  advocate  the  retention  of  the  whole  fleet  by  the  Gov- 
ernment. 

Want  No  Overcapitalization. 

The  problem  is  quite  as  complex  as  the  railroad  problem.  Its  solu- 
tion is  vital  to  the  welfare  and  prosperity  of  the  nation.  Private 
ownership  unquestionably  offers  an  inducement  to  American  energy 
and  skill,  but  one  of  the  phases  of  unrestricted  private  control,  which 
caused  me  considerable  concern,  was  the  possibility  that  under  such 
control,  ships  would  be  overcapitalized  as  were  many  of  the  rail- 
roads. We  want  the  initiative  and  skill  of  American  ship  operators, 


but  we  want  no  watered  stock.  We  want  to  avoid  the  stagnation  that 
sometimes  comes  from  red  tape  and  bureaucracy,  but  we  want  no 
profiteering  or  exploiting. 

We  want  the  new  fleet  used  for  the  benefit  of  the  people  of  the 
United  States  and  not  against  their  larger  interest.  We  want  it 
used  far  the  development  of  the  nation's  commerce,  and  not  merely 
for  the  development  of  the  private  fortunes  of  ship-operators. 

No  one  will  deny  that  our  foreign  trade,  or  the  operation  of 
American  ships,  will  decline  unless  there  is  a  profit  for  the  men  who 
invest  their  money.  But  whatever  assistance  the  Government  is 
willing  to  render,  should  be  reciprocated  by  those  who  are  benefited. 
Therefore  the  nation's  shipping  policy  should  certainly  provide  for 
such  governmental  representation  as  will  guarantee  a  square  deal  to 
the  public. 

I  think  the  whole  nation  is  agreed  that  there  must  be  no  more 
scandals  of  overcapitalization  in  any  part  of  American  industrial  or 
commercial  life.  The  ships  built  by  the  nation  should  never  be  made 
the  basis  for  any  stoQk-jobbing  scheme.  I  think  the  nation  will  see 
to  it  that  they  are  not  so  used. 

Protection  for  Small  Operator. 

If  there  is  to  be  any  monopoly,  moreover,  it  must  be  a  government 
monopoly.  If  there  is  to  be  private  initiative,  the  field  must  be  kept 
open  to  the  small  operator,  whose  opportunity  to  compete  with  the 
large  operator  must  be  protected  by  the  Government.  The  mere 
possession  of  large  capital  must  not  give  the  larger  operator  an  oppor- 
tunity to  drive  the  smaller  man  out  of  business.  In  the  plan  I  am 
ready  to  submit  for  the  best  thought  and  impartial  discussion  of  the 
country,  I  believe  you  will  find  .that  the  fundamental  American 
theory  of  encouraging  competition  on  fair  terms  is  amply  safeguarded. 

When  we  recognize  the  precautions  that  must  be  taken  to  safe- 
guard the  interest  of  the  public,  there  is  no  further  need  for  hesita- 
tion in  meeting  a  large  problem  in-  a  large  way. 

It  is  my  hope  that  the  people  of  America  will  view  the  problem 
broadly.  The  men  who  earn  their  livelihood  from  the  operation  of 
ships  naturally  will  feel  that  they  are  chiefly  concerned.  The  men 
who  build  ships  also  have  a  very  large  interest  in  it.  Our  first  thought, 
however,  must  be  of  the  effect  of  any  inadequate  solution  upon  the 
hundred  million  people  who  compose  the  United  States.  Their 
interest  must  come  first. 

In  my  judgment,  any  policy  which  does  not  encourage  the  build- 
ing and  the  extensive  operation  of  ships  under  the  American  flag 
will  not  satisfy  the  American  people.  I  believe  that  a  sound  policy 
can  be  put  into  the  form  of  legislation  and  that  it  will  then  form  a 
permanent  foundation  on  which  further  improvements,  as  the  need 
for  them  appears,  can  be  erected. 

Ships  Now  Owned  by  Government. 

The  United  States  Government  now  owns  555  ocean-going  steel  cargo 
ships  aggregating  3,385,475  deadweight  tons.  In  addition  it  has  under 
contract  1,336  similar  vessels  of  9,275,006  deadweight  tons.  If  our  present 
program  be  carried  out,  there  will  be  tinder  the  American  flag  next  year 

6 


i6,732>7°°  deadweight  tons  of  ocean-going  steel  cargo  and  passenger  ships. 
This  fleet  will  be  the  equivalent  of  almost  half  the  merchant  tonnage  which 
plies  the  seas  today  under  the  flags  of  all  nations  combined.  The  Gov- 
ernment will  own  about  70  per  cent  of  it. 

The  economic  importance  of  this  great  fleet  would  be  difficult  to  over- 
estimate. Upon  its  successful  operation  under  a  sound  financial  and 
administrative  plan  by  vigilant,  courageous  men  who  have  the  interest  of 
American  industry  and  commerce  at  heart,  depends  more  than  upon  any 
other  factor  the  future  development  of  our  overseas  trades,  and  of  the 
domestic  industries  which  feed  it.  Therefore,  while  the  clouds  of  war 
disperse  and  the  conditions  of  the  new  era  begin  to  unfold,  I  desire  to 
invite  your  attention  to  a  digest  of  the  various  plans  which  have  been 
suggested,  and  to  submit  to  you  the  plan  which  seems  to  me  for  the  best 
interest  of  the  whole  country,  for  the  disposition  of  the  Government's 
ships,  and  for  the  development  of  the  American  merchant  marine. 

Different  Plans  Suggested. 

The  plans  which  have  been  considered  range  between  Government 
ownership  and  operation  on  the  one  hand,  and  unregulated  private  owner- 
ship and  operation  on  the  other.  In  general,  they  fall  into  one  or  more 
of  the  following  classifications:  ^ 

1.  GOVERNMENT    OWNERSHIP    AND    OPERATION: 
Under  this  plan,  title  to  all  vessels  nozv  owned  by  the  Government 
would  remain  in  the  Government,  and  their  operation  would  be  con- 
ducted by  Government  employees  and  agents.     The  adoption  of  this 
plan  would  necessitate  the  permanent  establishment  of  a  Government 
operating  force  with  branch  offices  and  agencies  in  every  port  of  the 
world.    Cargoes  wid  passengers  would  be  booked  by  the  Government 
representative,  and  the  accounts  would  be  cast  up  at  the  central 
operating  offices  in  Washington. 

2.  GOVERNMENT  OWNERSHIP  AND  OPERATION  FOR 
THE  BENEFIT  OF  THE  GOVERNMENT  THROUGH  THE 
MEDIUM  OF  A  PRIVATE  CORPORATION:  This,  in  effect,  does 
not  differ  from  operation  directly  by  the  Government,  except  that 
under  such  a  plan  Government  operation  might  be  more  easily  admin- 
istered, and  some  of  the  inertia  inherent  in  governmental  undertakings 
might  be  overcome. 

3.  GOVERNMENT  OWNERSHIP  AND  PRIVATE  OPER- 
ATION FOR  GOVERNMENT  ACCOUNT:  Under  this  plan  the 
Government  would  retain  its  ownership,  but  private  companies  would 
be  employed  as  agents  on  a  commission  basis  to  operate  the  vessels 
for  Government  account. 

4.  GOVERNMENT  OWNERSHIP  AND  PRIVATE  OPER- 
ATION FOR  PRIVATE  ACCOUNT:  This  would  mean  the  reten- 
tion of  Government  ownership  under  a  leasing  system  by  which  the 
vessels  would  be  leased  or  chartered  to  private  steamship  companies. 
After  paying  the  charter  hire  to  the  Government,  the  operator  would 
keep  the  rest  of  the  earnings. 

5.  OWNERSHIP  BY  A   SINGLE  PRIVATE   CORPORA- 
TION: Under  this  plan  title  to  all  vessels  would  be  placed  in  one 
large  private  corporation,  the  stock  of  which  ivould  be  sold  to  the 

7 


public,  the  Government,  if  it  chose,  guaranteeing  a  fixed  return  on 
the  stock.  This  would  entail  the  centralization  of  the  ownership  and 
operation  of  the  ships  now  owned  by  the  Government  in  one  large 
unit.  If  the  Government  guaranteed  a  fixed  return  on  the  stock,  the 
result  would  be  that  the  machinery  for  the  ownership  and  operation 
of  the  fleet  would  be  practically  identical  with  that  suggested  in  plan 
No.  "2,"  but  with  the  modification  that  the  Government  would  carry 
any  losses  which  might  be  incurred  without  receiving  the  benefit  of 
any  profits  which  might  be  earned. 

6.  PRIVATE  OWNERSHIP  AND  OPERATION:  Lastly,  the 
vessels  can  be  sold  to  private  companies,  to  be  operated  by  them 
entirely  for  their  own  account,  the  Government  thus  relinquishing 
all  interest  and  control. 

Arguments  in  Favor  of  Government  Ownership. 

The  argument  in  favor  of  Government  ownership  and  operation  is 
that  this  great  fleet,  which  has  been  created  with  taxpayers'  money,  should 
he  used  for  national  purposes ;  that  the  ships  have  not  been  built  to  earn 
profits  as  ships,  but  to  become  the  servants  of  the  nation  which  built  them. 
It  is  urged  that  they  should  be  used  to  develop  the  commerce  of  the  nation 
as  a  whole,  and  that  they  should,  if  necessary,  be  placed  in  trade  routes 
which  may  temporarily  prove  unprofitable,  but  ultimately  become  of  great 
value  to  the  nation  as  an  instrument  through  which  its  foreign  commerce 
can  be  increased. 

Private  companies  would  not  be  disposed  to  serve  the  national  interest 
in  this  way.  The  life  of  a  ship  is  comparatively  short.  Its  owner  must 
make  it  pay  today.  He  cannot  be  expected  to  take  a  loss  today  in  order 
to  build  up  a  commerce  which  will  become  a  source  of  profit  only  after 
the  ship  now  engaged  in  that  commerce  has  been  scrapped.  The  great 
need  of  this  country  is  that  new  trade  routes  should  be  established,  and 
it  is  urged  that  Government  ownership  and  operation  should  be  retained 
as  a  guaranty  that  all  ships  will  serve  the  nation  as  a  whole  and  not  a 
limited  class  of  private  shipowners. 

A  further  argument  in  favor  of  public  ownership  and  operation  is 
that  in  case  of  a  national  emergency  such  as  has  just  been  experienced, 
the  Government  would  be  in  a  position  immediately  to  convert  its  mer- 
chant fleet  into  a  military  weapon. 

Arguments  in  Favor  of  Private  Ownership. 

The  chief  argument  in  favor  of  private  ownership  and  operation  is 
that  a  successful  merchant  marine  depends  not  so  much  on  ships,  or 
money,  or  Government  aid,  as  it  does  on  the  existence  of  a  large  class  of 
alert,  resourceful  and  energetic  men  engaged  in  the  shipping  business. 
Mere  mechanical  efficiency  of  sjiip  and  shore  plant,  added  to  sound 
financial  backing,  is  not  enough.  The  man  who  enters  the  shipping 
business  enters  a  battle  against  the  wits  of  the  world.  He  must  have  a 
genius  for  shipping.  Fortunately  the  men  now  engaged  in  the  shipping 
business  in  the  United  States  are  of  that  character.  But  there  are  not 
enough  of  them.  We  need  many  more.  And  it  is  clear  that  the  number 
of  such  men  can  be  greatly  increased  only,  under  conditions  of  private 
initiative.  The  shipping  business  is  a  business  of  infinite  detail  and  infinite 
technique ;  yet  it  calls  for  great  courage  and  \vide-ranging  imagination. 

8 


The  formalities  necessarily  surrounding  Government  operations  are  not 
suited  to  the  successful  conduct  of  a  shipping  venture,  requiring  quick 
decision,  sudden  reversals  of  policy,  and  the  assuming  of  great  hazards. 
The  successful  shipping  man  in  an  emergency  consults  no  book  of  rules. 
He  consults  only  his  wits.  So,  it  is  contended,  that  only  under  private 
operation  may  we  expect  a  further  increase  in  the  number  of  small,  inde- 
pendent, skillful  ship  operators  which  we  shall  need  more  and  more  as  the 
American  merchant  marine  expands  its  activity  upon  the  seas. 

Furthermore,  the  establishment  of  a  merchant  marine  under  the 
American  flag  must  take  into  account  the  difficulty  of  securing  return 
cargoes.  If  ships  must  be  brought  back  in  ballast,  the  business  cannot  be 
profitable.  In  order  that  a  round  trip  may  be  made  without  a  considerable 
portion  of  it  being  in  ballast,  it  may  be  necessary  to  engage  in  a  triangular 
or  polygon  voyage.  In  order  profitably  to  carry  a  cargo  from  New  York 
to  Australia,  it  may  be  necessary  also  to  carry  a  cargo  from  Australia  to 
Japan;  thence  a  cargo  to  the  Cape  Verde  Islands,  with  the  short  return 
trip  in  ballast  to  New  York.  Such  operations  require  a  degree  of  special 
negotiation  and  freedom  from  control  to  which  Government  operations 
are  entirely  unsuited.  They  cannot  be  standardized.  No  rule  can  be  laid 
down  which  a  Government  employee  could  follow,  for  the  conditions  are 
constantly  shifting,  and  in  this  tramp  business  the  competition  of  the 
whole  world  must  be  met,  facility  with  facility,  and  rate  with  rate. 

Recommendations. 

A  careful  consideration  of  these  arguments  has  led  me  to  the 
conclusion  that  the  ships  should  be  sold  to  and  operated  by 
American  citizens  under  no  restrictions  other  than  the  terms  of 
the  bill  of  sale  and  the  fixation  of  maximum  freight  rates,  either 
as  provided  in  Section  18  of  the  Act  approved  September  7,  1916, 
or  as  may  be  agreed  by  the  Government  and  the  operator  in 
specific  instances. 

The  ships  should  be  sold  at  a  price  which  fairly  reflects  the 
current  world  market  for  similar  tonnage. 

Twenty-five  per  cent  of  the  purchase  price  of  each  ship  should 
be  paid  down,  the  remainder  falling  due  and  payable  in  graded 
annual  instalments  over  a  period  not  exceeding  ten  years.  The 
Government  should  take  and  hold  a  mortgage  for  the  unpaid 
balance,  charging  interest  thereon  at  the  customary  commercial 
rate  of  five  per  cent.  One-fifth  of  this  interest,  representing  the 
difference  between  the  customary  Government  interest  of  four 
per  cent  and  the  customary  commercial  rate,  should  be  paid  into 
a  Merchant  Marine  Development  Fund  to  be  described  hereafter. 

The  purchaser  should  be  required  to  agree  to  insure  and  keep 
insured  with  an  American  Marine  Insurance  Company,  his  equity 
in  the  vessel,  and  because  the  American  marine  insurance 
market  has  not  at  present  sufficient  resources  to  underwrite  all 
the  vessels  the  Government  has  to  sell,  the  Government  should 
carry  in  its  own  fund,  as  at  present,  but  for  purchaser's  account, 
hull  and  machinery  insurance  covering  that  part  of  the  vessel  for 
which  payment  has  not  been  made.  Our  experience  in  operation 
shows  that  the  Government  can  carry  this  insurance  for  at  least 
one  per  cent  less  than  the  open  market  rate.  However,  it  is  pro- 
posed that  the  open  market  rate  be  charged,  and  that  the  differ- 
ence be  paid  into  the  Merchant  Marine  Development  Fund. 


It  is  understood  that  no  transfer  of  a  vessel  to  foreign  registry 
should  be  permitted  without  express  permission  of  the  Govern- 
ment. 

Each  purchaser  who  wishes  to  operate  in  the  foreign  trade 
should  be  obliged  to  incorporate  under  Federal  charter,  the  neces- 
sary legislation  for  which  should  be  passed  by  Congress  without 
delay.  Such  a  charter  should  provide  that  no  stock  shall  be  issued 
in  excess  of  the  money  value  actually  paid  in  on  vessel  prop- 
erty, and  that  no  st6ck  .can  be  issued  or  transferred  to  an  alien. 

It  should  also  provide  that  one  member  of  the  Board  of 
Directors  for  each  company  shall  be  named  by  the  Government. 
This  director  should  draw  no  salary,  either  from  the  steamship 
corporation  or  from  the  Government.  He  should  receive  only  the 
customary  director's  fee  for  each  meeting  he  attend^. 

The  same  legislation  should  provide  for  periodical  meetings 
of  these  Government-named  directors,  in.  the  City  of  Washing- 
ton, where  they  will  constitute  an  official  body  which  will  confer 
with  and  advise  the  Shipping  Board,  or  other  designated  Govern- 
ment agency,  upon  problems  arising  in,  or  questions  affecting  the 
welfare  of,  the  American  Merchant  Marine,  including  the  admin- 
istration of  the  Merchant  Marine  Development  Fund. 

This  fund,  drawn  from  the  sources  previously  indicated, 
should  be  used  to  relieve  such  financial  difficulties  as  may  be 
encountered  in  the  development  of  an  adequate  and  well-balanced 
American  Merchant  Marine.  For  instance: 

It  is  foreseen  that  a  number  of  trade  routes  important  to  the 
immediate  or  future  welfare  of  American  commerce  must  be 
established  and  developed.  Some  of  these  routes  may  not  yield 
steamship  operating  profits  until  their  existence  shall  have 
attracted  an  increased  volume  or  better  balance  of  trade.  Revenue 
derived  from  the  carriage  of  mail,  and  possible  fees  for  the  train- 
ing of  seamen  and  cadet-officers,  may  partly  compensate  losses 
incurred  on  these  routes.  Still,  in  cases  where  the  Government 
sells  a  ship  upon  condition  that  it  be  operated  in  a  route  which 
may  not  prove  profitable  at  once,  it  will  be  necessary  to  provide 
for  the  paj'ment  of  defaulted  interest  from  the  Merchant  Marine 
Development  Fund,  in  the  discretion  of  the  Shipping  Board  or  ' 
other  Government  agency,  upon  recommendation  of  the  Board 
of  Government  Directors,  until  such  time  as  the  route  may  begin 
to  yield  profit.  When  the  ships  in  the  route  earn  their  annual 
interest  rate  and  a  profit,  one-half  the  profit  earned  each  year 
should  be  paid  into  the  Merchant  Marine  Development  Fund 
until  all  moneys  draw  from  the  fund  on  account  of  the  vessel  in 
question  shall  have  been  replaced.  The  other  half  should  go 
annually  to  the  steamship  stockholders. 

Such  vessels  cruising  in  routes  which  fail  to  prove  susceptible 
of  profitable  development  and  which  do  not  serve  any  purpose  of 
the  Government  of  the  United  States,  may  be  transferred  by  the 
Government  to  other  routes.  However,  should  the  Government 
become  convinced  that  any  vessel  has  failed  to  make  expenses 
solely  or  chiefly  because  of  incapable  management,  it  may  fore- 
close its  mortgage  on  that  vessel. 

10 


On  the  basis  of  one  billion  dollars'  worth  of  ships,  the  Mer- 
chant Marine  Development  Fund  would  be  fourteen  million  dol- 
lars. This  amount,  investigation  convinces  me,  would  be  more 
than  sufficient  to  care  for  all  deficiencies  likely  to  develop  during 
this  period. 

Until  sold  under  the  terms  just  stated,  all  vessels  should  re- 
main the  property  of,  and  should  be  operated  by,  the  Government 
of  the  United  States. 

Control  of  Rates. 

Taking  up  these  points  seriatum,  I  wish  to  enlarge  and  comment  upon 
them  as  follows : 

In  order  to  make  sure  that  the  American  Merchant  Marine  will  be 
operated  with  due  regard  for  the  interests  of  American  industry  and 
commerce,  it  is  necessary  to  exercise  control  over  the  maximum  freight 
rates  which  may  be  charged  in  regular  trade  routes. 

Sections  16  and  17  of  the  Act  approved  September  7,  1916,  provide 
remedies  for  unjust  discrimination  by  American  shipowners  against  any 
American  shipper  or  port,  aricl  they  also  forbid  the  collection  by  common 
carriers  in  foreign  commerce  of  any  rate  unjustly  prejudicial  to  American 
exporters  as  compared  with  foreign  exporters.  Section  18  of  the  same 
act  authorizes  the  fixation  of  maximum  freight  rates  charged  by  common 
carriers  by  water  in  interstate  commerce. 

There  remains  to  be  provided  means  for  preventing  the  impartial 
imposition  of  unjustly  high  rates  upon  all  commerce  moving  into  or  out 
of  the  United  States.  This  is  manifestly  beyond  the  power  of  legislation 
at  the  moment,  and  it  is  proposed  to  secure  such  control  by  agreement 
inserted  in  the  bill  of  sale  under  which  the  ships  are  released,  and  by 
making  such  control  a  condition  of  participating  in  the  benefit  of  the 
Merchant  Marine  Development  Fund. 

The  Selling  Price  of  the  Ships. 

It  has  been  recommended  that  the  ships  be  sold  at  prices  which  fairly 
reflect  the  world  market  for  similar  tonnage.  If  a  higher  price  were 
fixed  the  purchaser  would  not  be  able  to  compete  with  the  ships  of 
other  nations  carried  at  a  lower  rate.  If  a  lower  price  were  fixed 
Government  property  would  be  sacrificed,  and  at  the  same  time  a  blow 
would  be  struck  the  American  shipbuilding  industry  by  the  low  value  at 
which  ships  in  operation  would  be  carried  on  the  operators'  books.  The 
sale  of  tlje  vessels  at  the  world  market  price  would  be  fair  to  operator 
and  builder  alike.  Also,  it  would  automatically  fix  the  write-off  which 
must  be  made  on  account  of  the  excessive  and  necessary  war-cost  of 
the  ships. 

Terms  of  Sale. 

A  substantial  payment  should  be  required  upon  the  delivery  of  the 
ship.  The  best  interests  of  the  Government,  the  operator,  and  the  Amer- 
ican Merchant  Marine  demand  that  this  initial  payment  should  be  at  least 
25  per  cent  of  the  price  of  the  vessel.  Subsequent  payment  should  be 
made  as  follows : 

•ii 


Beginning  of  the  first     year    (initial  payment)    25% 

"  "  second    "  10% 

"  "  third       "  9% 

"  "  fourth     "  8% 

"  "  fifth  8% 

"  "  sixth       "  8% 

"  "  seventh  "  8% 

"  "  eighth     "  8% 

"  "  ninth       "  8% 

"  "  tenth       "  8% 

This  schedule  provides  for  the  payment  of  60  per  cent  of  the  purchase 
price  in  the  first  five  years,  and  40  per  cent  during  the  last  five  years. 
Such  payments  would  establish  the  purchasing  companies  on  a  firm  basis, 
and  would  serve  to  discourage  any  purchaser  who  might  contemplate 
reaping  large  profits  during  the  first  two  of  three  years,  with  a  mental 
reservation  to  retire  as  soon  as  present  high  freight  rates  decline  and 
profits  cease  to  be  abnormal.  At  the  same  time  these  terms  are  not  so 
severe  as  to  call  for  any  financial  assistance  beyond  that  which  usually  is 
accorded  reasonably  well-managed  commercial  enterprises  in  this  country. 

It  is  important  that  all  ships  be  sold  on  these  terms,  and  on  no  others. 
If  we  were  to  deviate  from  this  principle  we  would  place  the  big,  powerful 
and  experienced  operator  in  a  position  of  such  great  advantages  that  new 
blood  and  brains  hardly  would  dare  venture  into  the  business.  The 
American  Merchant  Marine  needs  enterprising  new  companies,  financially 
able  to  begin  operations  only  upon  a  small  scale,  but  determined  to  grow 
to  great  size  and  prosperity  by  dint  of  perseverance  and  grit.  This  is  the 
way  new  industries  on  shore  have  become  mammoth  in  less  than  a  gener- 
ation, and  it  is  largely  upon  the  application  of  the  same  genius  and  methods 
in  this  new  field  that  we  may  safely  rely  to  enable  our  inexperienced 
people  to  drive  their  way  to  success  upon  the  sea. 

Insurance. 

Simultaneously  with  the  purchase  of  a  vessel,  the  purchaser  should 
be  required  to  provide  hull  and  machinery  insurance  for  his  equity  with 
an  American  Marine  Insurance  Company.  As  additional  payments  are 
made,  the  equity  they  represent  should  be  insured  in  the  same  manner, 
until  a  hundred  per  cent  of  the  hull  and  machinery  insurance  has  passed 
into  the  hands  of  private  American  insurance  companies.  This  arrange- 
ment would  achieve  the  double  purpose  of  relieving  the  Government  of 
the  insurance  risks  which  the  exigencies  of  war  have  compelled  it  to 
assume,  and  of  making  possible  the  development  of  an  American  marine 
insurance  market  capable  of  carrying  insurance  on  all  the  vessels  under 
the  American  flag.  The  history  of  our  Merchant  Marine  shows  conclu- 
sively that  it  is  essential  for  American  shipowners  to  insure  their  ships 
with  American  marine  insurance  companies.  An  American  marine  insur- 
ance market  is  as  vital  a  necessity  to  an  American  Merchant  Marine  as 
is  American  capital  to  the  steamship  companies  which  constitute  it. 

That  part  of  the  equity  in  each  ship  which  is  covered  by  the  Govern- 
ment's mortgage  should  continue  to  be  insured  in  the  Government's  funds, 
as  at  present.  As  the  payments  progress,  however,  this  equity  will 
decrease,  until  at  the  end  of  ten  years,  the  Government  will  have  no  more 
need  of  carrying  any  insurance.  Additional  legislation  will  be  needed  to 

12 


enable  the  Government   to   carry  this   insurance  beyond  the  emergency 
period  now  authorized  by  law. 

The  Merchant  Marine  Development  Fund. 

It  has  been  indicated  that  this  plan  contemplates  the  setting  aside  of 
certain  moneys  representing  the  difference  between  the  customary  com- 
mercial charges  for  interest  and  insurance  and  the  rates  at  which  the 
Government,  in  virtue  of  its  peculiar  position,  is  enabled  to  charge.  In 
the  matter  of  interest,  it  has  been  shown  that  this  difference  would  be 
i  per  cent,  which  represents  the  advantage  over  the  customary  commercial 
rate  of  5  per  cent  which  the  Government  can  concede  without  loss  in  view 
of  the  fact  that  4  per  cent  is  the  rate  which  approximates  the  interest  the 
Government  is  accustomed  to  pay  for  money  it  borrows.  In  the  matter 
of  insurance,  the  experience  of  the  war  period  indicates  that  the  Govern- 
ment can  safely  carry  vessel  insurance  at  more  than  I  per  cent  below  the 
commercial  market  rate. 

As  heretofore  stated,  the  money  derived  from  these  two  sources  will 
amount  to  $14,000,000  the  first  year.  Expert  shipping  men  have  carefully 
computed  that  this  sum  will  be  double  the  amount  needed  to  meet  any 
contingency  likely  to  arise.  This  money  should  be  paid  into  the  hands 
of  the  Shipping  Board,  or  other  designated  Government  agency,  as 
trustee,  to  be  used  as  may  be  necessary  for  the  development  of  the 
American  Merchant  Marine. 

A  good  idea  of  the  resources  which  this  plan  provides  for  financing 
the  development  of  the  American  Merchant  Marine  can  be  gathered  from 
the  following  table.  It  is  assumed  that  the  money  will  be  placed  in  an 
approved  depository  where  it  will  draw  interest  at  2  per  cent,  compounded 
semi-annually.  Remembering  that  any  disbursements  which  may  be  made 
during  the  first  few  years  will  be  returned  during  the  last  few  years,  it 
will  be  seen  that  the  size  of  the  fund  for  the  ten-year  period  will  be 
$83,533,170.70. 

TOTAL  ACCRUALS  TO  MERCHANT  MARINE  DEVELOPMENT 
FUND  DURING  TEN-YEAR  PERIOD 

Period  Deposits  Interest                    Total 

ist  Year  $7,500,000  $150,750.00  $7,650,750.00 

2d  14,000,000  435,180.08  22,085,930.08 

3d  12,100,000  687,137.19  34,873,067.27 

4th  10,400,000  909,988.64  46,183,055.91 

5th  8,800,000  1,105,159.42  56,088,215.33 

6th  r  7,200,000  1,272,093.12  64,560,308.45 

7th  5,600,000  1,410,222.20  71,570,530.65 

8th  4,000,000  1,518,967.67  77,089,498.32 

9th  2,400,000  i,597,738.9i  81,087,237.23 

loth  800,000  1,645,933.47  83,533,170.70 

Total     $72,800,000        $10,733,170.70 

The  purposes  for  which  this  fund  may  be  drawn  upon  and  the  condi- 
tions under  which  operators  will  be  entitled  to  aid  have  already  been 
indicated.  It  is  impossible  at  this  time  to  go  into  greater  detail,  except  to 
say  that  in  view  of  the  peculiar  character  of  the  ship-operating  business 

13 


and  the  extraordinary  trade  conditions  likely  to  prevail  during  the  next 
five  years,  the  trustee  should  be  allowed  to  use  considerable  discretion  in 
the  administration  of  the  Merchant  Marine  Development  Fund.  Also,  it 
is  important  to  point  out  that,  although  new  accretions  to  the  fund  will 
diminish  year  by  year,  the  amounts  returned  to  it  by  the  companies  which 
have  weathered  the  stormy  periods  of  their  careers  can  be  relied  upon 
to  keep  it  practically  intact.  The  only  losses  which  need  be  considered 
are  such  as  may  arise  through  foreclosures  executed  against  companies 
which,  despite  the  aid  of  the  fund,  have  failed  to  earn  their  charges. 

It  cannot  have  escaped  notice  that  the  assistance  I  propose  to  render 
with  the  Merchant  Marine  Development  Fund  takes  the  place  of  the 
Government  backing  for  the  development  of  new  trade  routes  in  the 
national  interest,  which  is  the  strongest  argument  brought  forward  by  the 
advocates  of  a  Government-owned  and  operated  Merchant  Marine.  Yet 
not  one  cent  of  this  fund  is  drawn  from  the  public  treasury.  Instead,  the 
money  represents  profits  forborne  by  the  Government,  which  is  not  entitled 
to  earn  profit  while  engaged  in  developing  the  industries  of  its  people. 
Neither  can  it  be  said  that  the  money  will  be  taken  from  the  steamship 
business,  for  in  no  case  will  the  operators  be  charged  more  than  the 
current  market  rate  for  similar  service,  whether  the  service  rendered  be 
insurance  or  credit. 

The  Government  Directors. 

.* 

The  functions  of  the  Government  Directors  mentioned  in  connection 
with  the  Federal  charter  under  which  our  steamship  companies  should 
operate  will  be  of  utmost  importance.  The  provision  which  prohibits 
their  drawing  a  salary  automatically  insures  that  no  great  number  of  them 
will  be  men  whose  interests  are  centered  in  the  steamship  business.  Al 
Jihe  same  time,  the  provision  that  the  Government  shall  name  them  insures 
that  they  will  be  men  of  standing,  sympathetic  with  American  interests, 
and  alive  to  the  public-service  character  of  the  steamship  business.  Upon 
these"  men  the  American  Merchant  Marine  will  rely  to  bring  about  that 
co-ordination  of  effort  which  will  insure  healthy  conditions  within  each 
corporation,  clean  business  methods,  and,  in  short,  will  put  each  operating 
unit  on  its  mettle,  both  in  its  own  interest  and  in  the  interest  of  the 
American  Merchant  Marine  as  a  co-operative  whole. 

These  Government  Directors,  accompanied  by  members  of  the  oper- 
ating companies'  boards,  should  meet  in  Washington  quarterly,  or  at 
other  stated  periods.  They  should  form  a  permanent  organization  and 
establish  permanent  offices.  These  offices  should  be  the  point  of  con- 
tact between  the  operating  companies  and  the  Shipping  Board,  or  other 
designated  Government  agency.  -They  should  be  the  clearing  house  for 
the  operators'  periodical  statements,  and  they-  should  be  in  charge  of  a 
secretary  who  is  paid  a  salary  from  the  Merchant  Marine  Development 
Fund. 

Immediately  upon  convening  in  Washington  the  Associated  Directors 
should  appoint  from  among  their  membership  a  sufficient  number  of 
committees  to  handle  all  the  important  problems  of  steamship  operation. 
There  should  be  a  committee  on  trade  routes,  a  committee  on  freight 
rates,  a  committee  on  finance,  and  a  committee  on  organization.  These 
committees  should  be  subordinate  to  an  Executive  Council  composed  of 
five  members  who  should  remain  in  session  after  the  general  meeting 
of  all  the  Associated  Directors,  in  order  to  digest  the  proceedings  and1 

14 


recommendations  oj  the  meeting  and  present  them  in  proper  form  to  the 
Shipping  Board,  or  other  designated  Government  agency. 

After  consultation  with,  and  upon  the  recommendation  of,  the  Asso- 
ciation of  Directors,  the  Shipping  Board,  or  other  designated  Government 
agency,  would — 

(a)  Determine  what  assistance,  if  any,  should  be  given   from  the 
Merchant  Marine  Development  Fund. 

(b)  Establish  new  trade  routes,  or  modify  or  discontinue  old  ones. 

(c)  Determine   whether   or   not   a   defaulting    mortgage   should   be 
foreclosed. 

(d)  Take  any  steps,  or  exert  any  influence,  within  its  power  to  im- 
prove the  American  Merchant  Marine. 

New  Legislation  Required. 

In  order  to  make  this  plan  effective  it  will  be  necessary  to  ask  Congress 
for  three  statutes.  One  of  these  statutes  should  authorize  the  incorpora- 
tion of  steamship  companies  under  Federal  charter  along  the  lines  I  have 
indicated.  Another  statute  should  extend  the  emergency  power  to  carry 
hull  and  machinery  insurance  in  the  Shipping  Board's  fund  so  that  this 
function  may  continue  to  be  performed  by  some  designated  Government 
agency  so  long  as  the  Government  may  continue  to  hold  an  equity  in  any 
of  the  .vessels  it  now  owns  or  has  under  contract.  The  third  statute,  of 
which  I  shall  speak  at  greater  length,  should  revise  the  present  status  of 
vessel  mortgages  so  as  to  make  them  attractive  to  bankers  and  other 
investors. 

The  security  of  a  mortgage  may  be  imperiled  by  loss  or  damage  to 
a  vessel,  or  by  the  attachment  of  superior  liens.  Such  liens  can  generally 
be  classed  as  those  arising  from  debts  and  from  liabilities.  The  most 
important  ones,  resulting  from  debts,  arise  from  the  furnishing  of  repairs, 
supplies,  or  other  necessaries  in  the  maintenance  and  operation  of  a  vessel, 
including  pilotages,  towages,  port  charges,  crews'  wages,  and  other  con- 
tractual obligations.  Liabilities  creating  liens  result  principally  from 
collisions,  strandings,  salvages,  general  averages,  cargo  damages,  and 
personal  injuries.  Practically  all  such  liabilities  can  be  insured  against 
by  the  standard  form  of  marine  insurance  policies,  and  by  protection  and 
indemnity  insurance. 

If,  therefore,  the  mortgage  contains  covenants  and  agreements  to 
compel  the  mortgagor  to  insure  against  such  liabilities,  as  well  as  loss 
from  fire  and  marine  peril,  the  security  of  the  mortgage  will  only  be 
jeopardized  by  liens  arising  from  contractual  obligations.  It  is  my  pro- 
posal to  obtain  protection  against  the  latter  by  amending  the  existing  law 
so  as  to  assure  to  anyone  furnishing  such  repairs,  supplies,  other  neces- 
saries, etc.,  the  opportunity,  by  exercising  due  diligence,  of  obtaining  full 
information  by  the  existence  of  the  mortgage,  and  then  to  provide  that 
the  lien  of  the  mortgage  shall  be  superior  to  liens  for  repairs,  supplies,  and 
other  necessaries  (contractual  obligations),  etc. 

By  this  co-ordination  of  mortgage,  covenants,  and  agreements  and  the 
statutes,  reasonable  and  adequate  protection  can  be  secured  to  the  mort- 
gage. I  would  provide  for  such  notice  by  requiring  that  all  mortgages 
be  recorded  with  the  Collector  of  Customs  where  the  mortgaged  vessel 
is  registered  or  enrolled  and  that  the  ship's  registry  or  enrollment  have 
endorsed  upon  its  face  the  names  of  the  mortgagor  and  mortgagee,  the 
place  of  record,  and  the  amount  secured  thereby. 

15 


Such  record  and  endorsement  would  be  made  a  condition  precedent  to 
the  validity  of  the  mortgage  as  against  all  the  world  save  the  mortgagor 
and  mortgagee.  If  then  the  owner,  master  or  agent  of  any  vessel  apply 
for  the  furnishing  of  repairs,  supplies  and  other  necessaries,  or  for  the 
rendition  of  contractual  services  (except  for  the  services  of  seamen)  upon 
the  mortgage  of-  the  vessel,  the  proposed  creditor  could  immediately  advise 
himself  of  the  existence  of  any  mortgage  by  examining  the  ship's  papers, 
and  could  by  telegraphic  means  communicate  with  the  Collector  of  Cus- 
toms of  the  home  port  of  the  vessel  and  ascertain  the  amount  remaining 
unpaid  upon  the  mprtgage.  With  this  information  the  proposed  creditor 
could  determine  for  himself  the  advisability  of  extending  the  requested 
credit.  If  he  did  so  and  a"  foreclosure  of  the  mortgage  upon  the  vessel 
should  destroy  his  security,  he  would  be  without  grounds  of  complaint 
against  the  superiority  of.  the  mortgage,  because  he  would  have  f  urnished/ 
the  credit  with  full  knowledge  of  the  superior  lien  of  the  mortgage. 

I  would  also  vest  in  the  United  States  District  Court  exclusive  juris- 
diction over  the  foreclosure  of  the  mortgages,  instead  of  leaving  the 
mortgagees  to  their  present  remedy  in  the  State  court.  This  would  make 
the  practice  uniform  and  therfeore  greatly  enhance  the  security  value  of 
the  mortgage  by  providing  a  speedy  and  simple  method  of  foreclosure. 
It  would  also  avoid  the  inconsistencies,  delays  and  uncertainties  of  State 
laws  and  procedure  which  now  exist.  By  and  large,  the  enactment  of  a 
statute  such  as  I  have  outlined  would  make  of  a  mortgage  on  American 
vessel  property  a  security  fully  as  good  as,  and  in  some  respects  better! 
than,  a  mortgage  on  vessel  property  sailing  under  any  other  flag  on  earth. 

The  demand  for  tonnage  at  the  present  time  is  so  great  that  every! 
available  ship,  including  our  wooden  ships,  is  in  service.  The  feeling! 
among  shipping  men  is  that  this  great  demand  will  continue  for  at  least 
two  or  three  years.  On  account  of  the  different  variety  of  service  for 
which  wood  ships  and  steel  ships  are  especially  suitable,  I  have  not 
included  the  wood  ships  in  my  plan  for  the  disposition  of  the  steel  ships. 

Conclusion. 

In  conclusion,  I  have  only  to  say  that  thi?  ^lan  is  bas  "  upon  profound 
convictions  formed  after  a  close  personal  study  of  conditiu  at  home  and 
in  Europe,  and  after  careful  consideration  of  the  best  information  I  could  j 
obtain  about  what  is  going  on  in  other  quarters  of  the  globe.  I  have  noti 
permitted  myself  to  be  guided  by  tfte  example  or  methods  of  other  nations, 
except  insofar  as  it  has  seemed  necessary  to  take  cognizance  of  the  results 
of  their  acts  and  methods  as  conditions  which  the  American  Merchant 
Marine  will  have  to  face  upon  the  waters  of  the  five  oceans  and  seven 
seas.  My  one  thought  has  been  to  work  out  a  plan  which  would  be 
American  in  conception  and  adapted  to  the  ideals,  genius,  temperament 
and  business  methods  of  the  American  people — a  plan  sufficiently  elastic 
to  serve  the  enormous  extension  of  overseas  trade  we  have  in  prospect 
without  having  to  undergo  disorganizing  changes.  I  have  just  laid  the| 
product  of  my  labor  before  you. 


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